Hmmm... Renting Vs Buying The breakdown!

Many Canadians spend a lot of time thinking about Buying a home or Renting a home and what the benefits of each are. Granted for most the whole decision is always based on payments per month and not the true breakdown of what HomeOwnership can do for you in the future months. I have decided after reading an article that maybe a great blog post would be on the benefits of Renting and the benefits of HomeOwnership and all the things you should consider when making your choices.

Lets start with Renting. Renting is a great solution for many folks. If you are in school it can be cost effective in many ways. You could get a place in a neighborhood close to where you are attending school and not feel forced to stay there if you don't like it due to a mortgage. If you are new to a city then renting can also be an excellent solution so you can discover the different areas of town and decide which one best suits you. Is renting cost effective? Well I guess in a way yes. You are responsible for your rent payment, your utilities in most cases and that is really it. If the plumbing explodes or furnace quits that all becomes the problem of the Landlord. However what if you encounter a slumlord? What if when the furnace breaks you find out that the Landlord will not fix it? Yes I guess you could pack up and move, however that is rather inconvienent now isn't it? Granted we have the rentals tribunal it usually takes a long time to get them to take action and by then you have frozen into a popsicle and are very hostile about the whole living quarters. However there are many positive sides as well. Renting is more or less a carefree environment. You don't have to paint you can just live, you don't really hold any sort of subjective value to the home because truly it is only yours for a short period of time until you decide it's time to move on. So lets just gather our facts here :

Renting Pros:

1. No longterm Commitment
2. No responsibility for home systems
3. Figure out the city and where you would want to purchase.
4. Seems more affordable.
5. Easier solution???

Now lets talk a bit about purchasing a home and the benefits of that. Buying a house can have many advantages. When you buy a home it is yours. You get to make all the decisions regarding cosmetics, flooring, lawn landscaping etc. However it can be a scary thing as well. You have to live in a purchased home for a year or you get hit by the lovely capital gaines. You also have to make a substantial investment when purchasing. There is also that darn credit bureau thing as well. But if you have good credit and could purchase your own home how can it really benefit you? Well lets look.. When you purchase a home lets say for $225,000 you have to generally put down 5% which is equal to $11,250. So now your only mortgaging $211,250 + CMHC premium so likely in the $215,000 area. A payment on that amount of dollars at current interest rates is in the $1050 per month range for payment. Now in all honesty what does $1050 rent you in the Ottawa area? 2 bedroom apartment? Maybe a small house in a scary neighborhood where as a female you shouldn't be out alone past dark? Well lets go in further. What additional costs do you have that you won't while renting? Oh yes Property Tax. So lets go with a sound 3000$ / year for property taxes. So broken down into 12months that is the equivalent of $250 / month. SO right now on a purchase of $225,000 you are looking at $1300 / month. Now many when renting don't obtain house insurance, which really you should because you could get robbed or have fire just as easy there as you could in a home. House insurance is under a $1000 / year in most cases. So lets be realistic and say everything in without utilities you are looking at $1400/mth. Not to bad really. Well it is that $400 / month more then the $1000 / month scary rental but what are the benefits of owning? Well here it is. When you buy a home you gain what we like call networth and equity. The banks recognize homeowners differently as you now have responsibility's and something that provides you equitable value. Now lets say you bought this $225,000 property in the popular Barrhaven area. In a years time of payments you will have paid a chunk of that principal amount down that you owe especially considering low interest rates at this time. So not only have you paid down your debt you have also gained equity on the home. So if the consistancy of property value rise was 5% your home would now be worth $236,000. You only owe now $211,000. Plus you went ahead and with your income tax money added a new bathroom and some hardwood floors during that year so now your property is worth $245,000. Now what would happen if after a year and a half you decided you didn't like it there anymore or you had to move away? If you were renting you definately would not be walking away with any money in your hand now would you? But on this home that is now worth $245,000 and you have a $211,000 mortgage out on you are likely going to walkaway with $20,000 dollars in your pocket after everything is said and done. Do you think that is a worthwhile investment after 12 months of ownership? I would say. Now the major concern is what if our finances changed and we found it hard after a year or our car broke down or what have you? Well as your home builds value you gain that equity. So say your home is now worth $245,000 and your mortgage amount owing is $211,000 you would be able to remortgage your home anywhere up to 95% of value and use that money to help you out. It is a great feature of a mortgage. When your mortgage goes up in principle $20,000 dollars you are talking $20-$50 per month difference in payment. Now if we take $245,000 at 95% of value that is $232,750. So you could get yourself $21,000 if you needed it. There are lots of solutions in this situation and you are only paying into your future. If you can afford to buy a home this is the best solution. And do keep in mind that this is based on a $225,000 purchase. I could sell you a Condominium in Barrhaven with 2 bedrooms for under $180,000. Yes you would have a $185.00 condo fee per month ontop of the mortgage but it will still be cheaper then renting that exact same unit. Now if you are in school and working at the same time think about buying one and renting a room to your friend. Hey there is $500.00 more a month against it. So many possibilities they are endless.

So what are the pros of Buying?

1. EQUITY - Build yourself a financial platform.
2. Future. Best investment currently is a home. You get the most return.
3. IT'S YOURS!

If you want to discuss this further feel free to email me. If you want to get preapproved or check to see if you can receive a mortgage let me know and I will direct you to my Mortgage Agent Professional.

Thanks all and keep smiling... Life is grand when you let it be!